Ultimately, Samsung will have to choose where it would add more value in the chain IMHO. Its foundry business will suffer if they do not, for example, as more conflict of interest cases will inevitably arise.

@mcgrathdylan, I agree with your view. I would add that chip fabrication needs time, discipline and continuous improvements which are hard to copy easily and quickly. You also need access to high tech equipment which you can't get without Western green light. All in all, the position of China is to be expected. Whether they would be able to build a world-leading indigenous fab industry depends on economic AND political parameters which are hard to predict.

Thanks Tom. I must admit, I don't feel qualified to answer the question about where SMIC was in relation to TSMC a few years back. If you are asking if they are making progress in bridging the gap, I would off the top of my head say they probably are a little closer to TSMC than they used to be. But I think it gets a lot more difficult the lower you go. And SMIC doesn't have the R&D mite or financial resources that TSMC has, so it's tought to see them making that leap without heavy government intervention. And I think China's government is done with this, at least for now.

Don't forget, SMIC settled with TSMC a few years ago for $290 milion after a California Court found that SMIC had stolen IP from TSMC.

I bow to your wisdom here, Dylan. But I wonder: if SMIC is just two years behind TSMC, wasn't it just a few years ago that you would have said they were five years behind? It seems like they're catching up PDQ. No?

Tom: I agree. But it's not the quaility of the chips, just the process technology. SMIC, the leading foundry in China, is two years behind TSMC. They can't move up the curve that fast, especially since you know TSMC will not slow down. Barring something like an acquisition, which seems highly unlikely, TSMC and the rest of the pack will remain ahead of SMIC and other Chinese foundries for the foreseeable future (which, I agree, is a difficult timeframe to define).

Dylan: I think we all will gain respect for China's technology chops when it launches its first commercial airliner, which I believe is still due in 2016. China has launched humans into space, but it still struggles with building a good jet engine. It's reportedly working with GE, Rolls-Royce and others on the new C919, a 200-person, single-aisle aircraft. Here's a story from 2011 on it.

I've heard it said that building a jetliner is the "New York, New York" of technology. If you can make it there, you can make it anywhere. And China is almost there, so it may be in the chips sooner than you think.

As for "Made in China" becoming a mark of quality, I've already heard from people in electronics and other industries that the quality of Chinese manufacturing has improved rapidly. I have no doubt that many of the products built there are already of great quality. But there is such a wide range, depending on the product. I think it will be a while before people can associate China with quality products. If ever

That may well be true, and I have no doubt that China's fabless ecosystem will grow and that those fabless chip companies would prefer to have their chips built in China if they can. And for things like less expensive smartphones, there could be significant activity at older process nodes. But anyone who is doing anything at or near the cutting edge has no choice but to use TSMC, Globalfoundries, Samsung and maybe UMC. And I'm just not sure how many fabs those leading foundries are going to build in China (the fab that Samsung is building in China is for memory, not foundry). TSMC has one smallish fab in China, but the Taiwanese government won't let TSMC use its leading edge process there.

I think Tamza is right. There has to be a clear advantage in the notion of the Chinese making their own chips, and I'm not sure it's there ... yet. If it were possible to cut production costs with a locally produced chip that provided equal value and lower cost, that would be a huge factor to any manufacture making goods in China, but that is not the case...yet. However, as China-based companies start manufacturing more of their own goods, they will look first for a local supplier. Then we may see a hockey stick rise in chip production.

Tamza: I recall in the late 50s/early 60s, when "Made in Japan" was a label that translated into "cheap." And yes, I recall well how that changed very rapidly from the last 1960s into the 1970s. I think we'll live to see "Made in China" become a mark of quality.